Pregunta
Question 47
Which of the following will most likely increase aggregate supply in the long run?
(1) higher real interest rates
(3) an increase in the expected inflation rate
(4) an increase in the rate of capital formation
(3)
Which of the following will most likely increase aggregate supply in the long run?
(1) higher real interest rates
(3) an increase in the expected inflation rate
(4) an increase in the rate of capital formation
(3)
Ask by Zimmerman Greene. in Cayman Islands
Mar 31,2025
Solución de inteligencia artificial de Upstudy
Respuesta verificada por el tutor
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An increase in the rate of capital formation will most likely increase aggregate supply in the long run.
Solución
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Identify the Effect of Each Factor on Long‐Run Aggregate Supply (LRAS):
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: Higher rates make borrowing more expensive, which tends to reduce investment. Lower investment generally leads to a slower rate of capital accumulation and a smaller capacity for production in the long run. -
: An expectation of higher inflation can lead to higher nominal wages as workers require compensation for anticipated price increases. This increases production costs and does not necessarily improve the long-run productive capacity. -
: Higher capital formation means more investment in physical capital (e.g., machinery, infrastructure), which increases the stock of productive resources. This enhances productivity and shifts LRAS to the right.
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Conclusion:The most direct factor that increases aggregate supply in the long run is an increase in the rate of capital formation because it expands the economy’s productive capacity.
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Simplifique esta solución Bonus Knowledge
Historically, an increase in the rate of capital formation has laid the foundation for economies to build more productive capacities. This process involves investing in physical assets—like machinery and infrastructure—that lead to higher efficiency and output over time. Countries that prioritize capital formation often witness robust economic growth as they can produce goods and services more effectively.
In the real world, capital formation is like planting seeds for future prosperity. When businesses decide to invest in new equipment or technologies, they’re not just purchasing items; they’re paving the way for increased productivity. This increase means they can supply more goods at lower costs, stimulating the economy further by meeting demand without pushing up prices. It’s all about smart investments leading to rewarding outcomes!
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